Foreign Relations of the United States, 1977–1980, Volume XXVII, Western Europe

80. Telegram From the Embassy in Canada to the Department of State¹

395.

Ottawa, January 23, 1980, 1804Z

SUBJECT

• Consultations with Canada on Iran/Afghanistan/Pakistan.

1. Secret—Entire text.

2. Summary: On January 22, Ambassador Habib and Deputy Assistant Secretary Johnston accompanied by Embassy officials, met with senior Canadian ExtAff officials to review current situation and entire range of bilateral and multilateral actions affecting Afghanistan, Iran and Pakistan. Canadians stated they were willing and able to take most of the measures we proposed, but stressed that it would be politically impossible to do so in the absence of Western solidarity. Failure to develop Western solidarity would be a damaging signal to the Soviet Union. Canadians saw major problems in securing cooperation of Western Europeans in the trade field, particularly with respect to the Soviet Union. They suggested a multilateral meeting at the political level to sort out what could, jointly and selectively, be done. They also suggested proposing an Austrian-like neutralization of Afghanistan in order to expose the hypocrisy of the Soviet position. End summary.

3. Ambassador Habib, Deputy Assistant Secretary Johnston, Ambassador Curtis, DCM and EconCouns met Jan. 22 with Under Secretary Gotlieb, Deputy Under Secretaries Goldschlag and Johnstone and other Canadian officials in 5-hour review of current situation. Following message reports this exchange, broken down under Iran, Afghanistan, Pakistan and other subjects.

4. Iran: Ambassador Habib opened discussion by stressing that USG’s primary and overriding objective remains the release of the hostages. Nothing was possible unless they were released but many things became possible once they were released. We could not accept a situation whereby release was conditional on the completion of other actions, e.g., following a UN inquiry commission. We have made this position fully clear to the Iranians through a wide range of intermediaries. It was our judgment that an increase of international pressure on Iran would be the best way to assist those rational elements in Iran who appreciated the problems that Iran faced and who could ultimately persuade those with authority in Iran that release of the hostages was necessary. Our request of the international community was absolutely clear, i.e., we wish the community to implement the sanctions contained in the Security Council’s resolution which had been vetoed by the Soviet Union.²

5. On Afghanistan, Ambassador Habib stated that our objective was to make the invasion of Afghanistan sufficiently costly for the Soviet Union so that it would (A) withdraw its troops and (B) not take similar action elsewhere. In order to do this we had restricted U.S. export of agricultural products, requested that other free-world suppliers not undercut us, and had suggested a variety of financial, trade and other measures which were designed to impact on the Soviet Union. We were asking that there be no exceptions to the new COCOM lists (except for computers where there would be no exceptions to the old list until it could be renegotiated). On Afghanistan itself, the USG sought a suspension of bilateral and multilateral assistance. Our other objective was to minimize the danger to the surrounding areas, most immediately to Pakistan.

6. We believe that it is necessary to strengthen substantially Pakistan, militarily, economically, and politically/psychologically. Ambassador Habib described the USG package which had been presented to the Pakistanis and which was currently being discussed with the Congress. He also reviewed our efforts to coordinate military assistance with other countries and to avoid an undesirable Indian reaction. He stated that we favored debt-rescheduling for Pakistan within the context of an IMF agreement on economic reforms if it looks as though an emerging default situation is likely. Our overall objective was to secure an increase in consortium pledges for Pakistan from the current 800 million dollars to the 1.4 billion dollar level. Those countries such as Japan and Germany, not in a position to assist militarily, were being asked to contribute more on the economic side. He noted that we had asked Japan for a quadrupling of its assistance. The USG hoped that Canada could double its assistance, i.e., move from 50 to 100 million dollars.

7. Ambassador Habib briefed the Canadians on the current state of consultations with the Japanese and European countries.

8. In responding, the Canadians stressed that they were speaking as officials, but it seems to us that all of their positions, with one possible exception noted below, reflect at least informal discussions with Ministers. Despite the fact that Canada faces an election on Feb. 18, they appeared confident that the views they reflected would probably be the Canadian views after the election, no matter who won.

9. Under Secretary Gotlieb made three general points on the Canadian approach to Iran/Afghanistan. First, the GOC fully understood the USG position and supported our objectives. They were aware of the tremendous domestic pressures under which the President was operating and appreciated the moderation in the USG response. Second, they were concerned that the USG was asking its friends and allies to undertake more than was politically feasible. The Europeans were not willing at present to take the steps we had proposed. Under these circumstances there was the danger that Iran and the Soviet Union, as well as other concerned countries, would ultimately draw the conclusion that there was no comprehensive Free World willingness to respond to situations such as prevailed in Iran and Afghanistan. Third, and closely related to the second point, the GOC believed that the USG should accept more selectivity in the response of individual countries to the Iranian and Afghan situations.

10. Gotlieb expressed concern that the present system of bilateral and multilateral consultations was inadequate. He suggested that a multilateral meeting, at the political level, was required to assure that everyone knew what the others were doing, and to bind governments to effective action. On timing, he suggested that no further action be taken with respect to Iranian sanctions until we can see whether Iranian policy had been influenced by the Islamic Summit meeting.³

11. On Iranian sanctions, Gotlieb reiterated understanding for the USG’s objective, but expressed strong doubt that there was sufficient political will in Western Europe to impose an effective multilateral sanctions system. He expressed concern that, if sanctions failed, it would demonstrate to Iran and the Soviet Union that they had nothing to fear in the way of a joint Western response, and the USG would be forced to consider a military response. Gotlieb further expressed doubt that sanctions would strengthen the hand of those forces in Iran who wanted to resolve the problem either for domestic reasons or because of fear of the Soviet Union and its cohorts inside Iran. Ambassador Habib reviewed the USG position and the reasons for this position, and the discussion shifted to the possible Canadian response to the USG request.

12. Deputy Under Secretary Johnstone stated that the GOC presently had the legal basis to restrict exports to Iran in any way it wished. In fact, Canadian trade had decreased sharply to 15 million dollars from earlier levels of 150–200 million dollars. The political prerequisite for trade restrictions was concerted action by major allies. The GOC had similar powers with respect to the use of Canadian carriers for such trade. On banking, Johnstone stated that there was no legal basis for mandatory action, but the GOC had requested voluntary action and so far had experienced no problems. On service contracts, the federal government had limited authority and it seemed questionable whether much could be done in this area other than to request voluntary compliance.

13. Johnstone expressed concern about Allied cooperation on the banking issue.⁴ He pointed out that Canadians were financially exposed in this area and doubted that other countries were, in fact, pressing their banks to cooperate. On the issue of default, he asserted that U.S. banks had not been helpful. In at least one recent case, where a U.S. bank was the agent for a consortium including Canadian banks, Iran had made the required payment but the U.S. bank had not passed on the payment to the Canadian participants. (Deputy Asst. Secretary Johnston pointed out that this was in accord with U.S. law.) Johnstone raised the question whether Iran was in fact legally in default when it had made payment to the agent and wondered what practical recourse was available to Canadian banks.

14. In passing, but with considerable feeling, Johnstone pointed out that the IEA cooperative system⁵ could have a particularly adverse effect on Canada. He noted that the system was based on consumption rather than imports and that countries with relatively low import levels such as Canada might be required to give up a high percentage of their import levels in order to assist countries with large imports such as Japan. He noted that if the cooperative system had been based on imports rather than consumption, Canada would not face this problem.

15. Gotlieb and the other Canadian officials repeatedly advanced the assessment that the Europeans did not presently have the political will to cooperate in sanctions against Iran. In order to avoid giving an impression of weakness, it was therefore desirable for much closer multilateral coordination to determine what was possible. In the ensuing discussion, Ambassador Habib expressed doubt that the timing was ripe for a high-level multilateral meeting, but this idea should certainly be considered at some point.

16. With respect to Afghanistan, Gotlieb stated that the GOC had no problems with most of the steps suggested by the USG. The only area which caused major problems was that relating to export credits. The Canadian line of credit to the Soviet Union had expired and the Cabinet had decided not to replace it for now. However, the GOC still had to decide on case by case applications, and there were particular problems relating to commitments already existing or “in the pipeline.” Deputy Under Secretary Johnstone stated that, in his view, unlike the U.S., the elimination of new official credits meant the end of Canadian exports to the Soviet Union. He asserted that other countries did not appear willing to forego official credits. For example, the UK was continuing to approve specific loans under the existing line of credit and the Canadian Government would be almost certain to take similar action unless the Europeans and Japanese changed their policies.

17. With respect to oil equipment, Johnstone asked whether the USG had considered the impact of curtailing exports of oil production equipment on the Soviet Union’s need to acquire oil on world markets, and whether such action could increase the likelihood of Soviet attempt to take over oil resources in the Middle East. Ambassador Habib and Deputy Asst Secretary Johnston replied that considerable thought had been given to the subject.

18. Deputy Under Secretary Goldschlag, stating that he was speaking personally, asked whether consideration had been given to a diplomatic initiative in relation to Afghanistan. He and other Canadian officials noted that, if it were not for the situation in Iran, we would have wonderful rallying call for anti-Soviet feeling by Islamic countries. He wondered whether it would be useful to propose to the Soviet Union an agreement declaring Afghanistan a neutral and non-aligned country, on the model of Austria, with all foreign military presence barred. It was unlikely that the Soviet Union would accept this proposal but its rejection would expose the hypocrisy of the Soviet assertion that it had entered Afghanistan in order to protect it from other countries. Ambassador Habib stated that this was a new idea which would be considered.

19. On the issue of the Olympics, Canadian officials stated that Prime Minister Clark had challenged the appropriateness of holding the event in Moscow but he didn’t like the idea of a boycott.⁶ Clark had not excluded the possibility of holding the Games in Montreal and the GOC was currently looking into the possibility. The initial assessment indicated there were major problems and costs, but a final report would be available by the end of the week. Ambassador Habib and Ambassador Curtis reviewed USG position and noted that the USG would be prepared to assist if it were decided to hold the Games in Montreal.

20. On Pakistan economic assistance, the Canadians stated that cutbacks in the overall level of Canadian aid funding had required reductions in the bilateral program with Pakistan. Gotlieb stated that the best we could hope for would be a continuation of the GOC program at roughly the 50-million dollar level. On a more positive note, he said the GOC was taking action to institute an aid program to Turkey. Ambassador Habib expressed disappointment and asked the GOC to reconsider. In view of the need, we believed the level of Canadian assistance to Pakistan should be doubled.

21. Follow-up required: During the course of the discussions, the Canadians requested information on a number of points and the U.S. team promised that replies would be furnished. These are:

A. When does the U.S. intend to issue its regulations on trade with Iran?

B. How does one reduce the damage to Canadian banks which are not receiving payments from Iran that the U.S. recipient banks (agents for the consortium) are barred from passing on? Canadian banks do not know what accounts to attach in the U.S., and, in any case, the Iranians may not be in technical default since they made payment to the agent bank, as required.

C. Did the USG plan a further phase down of the size of the Iranian Embassy in Washington?

D. What was the nature of the assurances received from Pakistan regarding nuclear weapons development and nuclear explosions? (Canadian officials stated that the nature of these assurances would very much influence the ability of the GOC to consider any increase in assistance.)⁷

22. Department please pass to other posts as desired.

Curtis

1. Source: National Archives, RG 59, Central Foreign Policy File, D800040–0223. Secret; Immediate; Exdis.
2. On January 13, the Soviet Union vetoed a U.N. Security Council Resolution that would have blocked all exports to Iran except for food and medicines. The United States and many of its allies proceeded to impose economic sanctions against Iran on the basis of the Security Council’s December 31 resolution (see footnote 2, Document 79). (Bernard D. Nossiter, “Moscow Vetoes Plan to Impose Penalty on Iran,” New York Times, January 14, 1980, pp. A1, A4)
3. Reference is to the Islamic Conference of Foreign Ministers, which met in Islamabad from January 27 to 29. (“Text of Islamic Resolution on Afghans,” New York Times, January 30, 1980, p. A13)
4. Telegram 323610 to London, Bonn, Paris, Rome, Bern, Brussels, The Hague, and Ottawa, December 16, reported that the United States had decided to seek the cooperation of its major allies in a series of economic measures against Iran such as making no new credits to Iran, declaring Iran in default if payments were late, and declaring defaults on other loans having cross-default clauses. (National Archives, RG 59, Central Foreign Policy File, D790578–0281)
5. On December 10, 1979, the IEA Governing Board agreed to meet every three months to adjust their ceilings for oil imports based on available supplies. See Foreign Relations, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980, Documents 250 and 251.
6. On January 11, Clark stated that his government questioned whether the Olympic Games should be held in the Soviet Union and that Canada would lead efforts to move them to another country. (Joseph B. Treaster, “Canada’s Leader Proposes Moving Olympics Out of the Soviet Union,” New York Times, January 12, 1980, pp. 1, 4)
7. Telegram 26628 to Ottawa, January 30, responded to these four questions, noting that the United States delayed implementing sanctions until Iran had an opportunity to respond to the Islamic Foreign Ministers Conference; that “it appears that most non-U.S. bank members of consortium loans to Iran are being paid;” that the Iranian Embassy’s staff in Washington had been reduced to 35 and that there were no plans to reduce it further; and that “The U.S. is still seeking Pakistan’s assurance that the GOP will not detonate a nuclear explosive device.” (National Archives, RG 59, Central Foreign Policy File, N800002–0519 and P870111–0455)